Customer Contact: Cost or Profit?

The question of whether customer contact results in cost centers or profit centers arises from my firm's observations of what has occurred within too many companies' inhouse and outsourced operations during the past several years. It also stems from discussions with other professionals who try to guide companies toward substantive customer contact.

The question has critical ramifications for several reasons. To a customer, the cost center answer means, "Companies want me to buy, but I'm not sufficiently important for them to meaningfully invest in the one-to-one dialogues that are the essence of a customer relationship." The cost center approach has driven many customers to the Internet. Ironically, these Internet customers now must be supported by the very cost centers from which they had been driven away. To employees, the cost center answer means, "Calls [not customers] are to be processed at a rapid rate for each hour I work and are less important than the data entry work to which the fastest call processors are promoted."

To a marketer, the cost center answer (shorter calls, lower pay, high supervisory ratios, high turnover) means, first, higher acquisition costs, higher costs per sale and lower retention because of lower conversion rates per contact; second, fewer dollars per sale; and lastly, lower customer retention because of post-sale services that do not reinforce why the customer bought from the company. In other words, customer relationship management and cost-driven customer contact centers are diametrically opposed.

Therefore, to a company, the cost center answer means stunted growth and lost profits. The best marketers are able to think and act across all customer-related business functions in their ability to get a company's goods and services into the hands of its customers - satisfactorily to the customer and at a profit to the corporation. They embrace customer contact staff and fully integrate these functions (the voices of the customer) into all product, market, marketing, campaign and media/channel planning.

Managers who define "selling" as pushiness, pitches or hustling customers create limitations for customers, employees and their companies' profits.

Every good salesman knows that customer buying decisions - especially from whom a customer buys - are personal decisions. Therefore, when customers have problems, it is the perfect opportunity to reinforce how "right" the customer's decision was. Client studies published by the TARP organization for more than 20 years have reinforced this philosophy. Yet, customer service (post-sale) staff are rarely trained to perceive themselves as part of the selling chain and in sales reinforcement terms.

There are solutions. What follows are solutions we have implemented or observed or that have occurred in a range of companies. Much of it is just common sense.

The advantage for change that now exists is the CRM concept. CRM is important to customer contact centers because it apparently has sufficient cachet to have captured the imaginations of many senior marketing executives as reflected in new magazines, journals and conferences. These CRM advocates are in a position to put real meaning into the one-to-one customer dialogues that are the essence of strong customer relationships - loyalty, long-term value and increased profits.

CRM aside, if a company cannot come to grips with the idea of a trusting sales relationship - pre-sale, sale or post-sale - between its employees and its customers, it cannot prosper to the greatest extent possible.

Solutions for becoming customer contact centers that make money. It's a matter of incremental profits. Current marketing efforts and customer product needs drive pre-sale and sale calls into a center, and the contacts are handled at a budgeted cost. Revenue per order is usually higher than mail and Web responses. Orders as a percentage of calls handled is a global number usually correlated with a particular advertisement, catalog or campaign.

Revenue-focused customer contact programs that are implemented effectively will generate more new customer orders, more current customer orders, more income per order and more customers retained at high returns for any incremental costs.

More often than not, the necessary data to determine the potential already exist for the pre-sale and sale activities, but are not being measured. A summary ranking of current representatives for a month will determine the extent of the profit opportunity. The wider the performance spread, the greater the potential. Often, the reps with the most calls per hour and shortest talk time will be at the low end of the spectrum, but paid more because of lower cost per call. The difference is based on the inherent sales and communications skills of the high-end reps. These skills can be developed in carefully selected, trained and coached reps and enhanced with comprehensive dialogues.

With post-sale services, the benefits may not be measured as easily. However, ask first:

• If the post-sale service operation did not exist, what would happen? Obviously, the company would lose customers and go out of business.

• If there is a wide high-to-low performance gap among sales staff, why wouldn't the same gap exist among post-sale services staff? There is and it does. And the staffs at the low end are probably handling 15,000 to 20,000 calls annually, often 10 percent more than the best reps. The accurate post-sale measurements take longer to determine but are just as important: Electronically append the reason for the contact along with the rep's ID code to the customer record as part of the customer long-term valuation. This is an essential element to CRM - as we interpret it.

• In addition to the longer term, high-profit dollars of retention, can the day-to-day post-sale service costs be made neutral through some level of revenue generation? Yes, if it is well-designed and well-executed.

Vision, goals and a plan. Experience indicates that the first step in achieving a shift from a cost to an incremental profit focus in the customer contact center is having the vision and belief that it will happen - at a senior management level. In companies in which these centers are consciously labeled as cost centers on the organization chart and have rigid cost caps, the impetus for change will need to be from the CEO. The reason is that the greater the behavioral entrenchment, the greater the power required to create the change.

Once the potential is clearly envisioned, it requires a dynamic "champion" with clear goals, quantified objectives and a plan to achieve successful execution:

• Coaching programs for the reps when they go live and for the run of the pilot.

• Center manager follow-up every step of the way.

Programs and dialogues. Inbound reps each handle approximately 15,000 to 22,000 one-to-one customer contacts per year. Therefore, pre-sale, sale and post-sale customer contact programs require structured approaches and dialogues by type of contact, if only to ensure accurate and high-quality contacts and rapid learning curves. They also are essential in translating the marketing communications into one-to-one dialogues that help customers buy while being an extension of how the company wants to be perceived by the customer.

The process of developing customer contact programs and dialogues is similar to the development of marketing programs, with the exceptions of comprehensive verbal interactivity (assimilated by reps through training and coaching) and consideration for the more powerful impact on the customer who is listening to the "voice" of the company.

Once in place satisfactorily, the basic program structure also should be used as functional specifications for any applications software acquisition to support the customer dialogues and dialogue efficiency.

Also, having a core structure and process in place enables easy adaptation to new marketing campaigns or contact center programs created to take advantage of new opportunities.

The dialogue development process also highlights the information on customer preferences that can be captured during the contact process. This capability is very CRM-supportive but must be limited to the context of what the rep is being directed to achieve.

Reorganization. In addition to effectively designed contact programs (including quantified objectives, measurements and accountability), another critical element is at the point of implementation - the high-quality, first-line people manager to whom the reps report directly, who works with the reps hourly and who is directly responsible for the results of their unit.

In many cases, the job described does not exist. Instead, the responsibility is often spread among a range of staff: shift supervisors, team leaders, quality assurance and training - with no one accountable and little or no real coaching being done (and no one aware that there are revenue differences of as much $20 per call among the reps with whom they work). This is often compounded by the out-of-pocket and opportunity costs in having these staff members do clerical work.

It is usually necessary to reorganize several of these positions. It is a matter of building contact quality and accountability into the job of the person to whom the reps report directly and to whom they are accountable. The lower ratios and increased number of exempt positions are easily cost-justified by the incremental profits to be gained - as is better pay for the right reps.

The first-line manager's job demands several skills: getting things done through people; expertise in the function (i.e., selling) for which they are responsible; people development; expertise in the tools at their command; and managing up - getting the resources their units need to get their jobs done successfully.

Other considerations. At a minimum, the customer contact centers should be labeled within the company along the lines they are capable of and that they achieve: incremental profit sales and retention centers with appropriate revenue credit and incentives for the profits generated. Experts in CRM would welcome such recognition and accountability for these customer contact activities that are at the core of building relationships - as we interpret the concept.

To ensure that the reps have the technology most supportive of their customer dialogues, we suggest the following:

Prior to upgrading customer contact applications, the assigned information systems/information technology staff should be trained as representatives and perform the functions for at least 10 workdays. The new applications will be on target and on budget, easily offsetting the cost of having the expensive staff briefly on the phone.

Any decisions concerning incentives for the managers and their reps should be made after the training and coaching for the new program demonstrate the higher level of performance that will be achieved, providing a rapid return on the overall investment. When the incentives kick in, they will stimulate even higher profit increments.

All post-sale services and tech support staff should receive ongoing orientations about their roles as an extension of the sales chain and their quantifiable impact on customer retention in selling terms.

All marketing staff members who have never had personal selling experience or training also should attend orientations on selling, possibly sitting in on rep sales training and role plays.

Finally, the solutions described here will increase company profits significantly if implemented properly. However, there is one proviso to long-term success: The intensity of management required to get there must continue. If the intensity stops, the incremental profit stops. There are no subsequent shortcuts - or cost savings.

In summary. The business goals of customer contact services are not low-cost service or saving money. The goals, especially in competitive environments, are cost-effective customer acquisition, retention and development. Making money. The services or programs implemented are the strategies designed to achieve those business goals.

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